Street clashes as Spain tightens belt

A day after winning European Union approval for a huge bank bailout and breathing space on its deficit programme, Prime Minister Mariano Rajoy warned Parliament that Spain’s future was at stake as it grapples with recession, a bloated deficit and investor wariness of its sovereign debt.

“We are living in a crucial moment which will determine our future and that of our families, that of our youths, of our welfare state,” said Mr Rajoy. “This is the reality. There is no other and we have to get out of this hole and we have to do it as soon as possible and there is no room for fantasies or off-the cuff improvisations because there is no choice.”

The announcement came as thousands of Spanish coal miners fearing for their livelihood because of huge cuts in subsidies set off fireworks as they marched in Madrid.

Some had walked 18 days from northern and eastern mining regions to take part and were received as heroes. They are protesting a 63 per cent cut in subsidies to mining companies as part of austerity measures.

Riot police later fired rubber bullets directly at miners, relatives and sympathisers as they gathered outside the Industry Ministry after marching up Madrid’s main north-south avenue.

The clashes with police and the rubber bullets sent people scurrying for safety. Protester Santiago Oviedo, 24, said he saw protesters hurling fireworks, bottles and cans at police behind a cordon outside the ministry.

Spain’s spending cuts, designed to cut 65bn euro of state budgets by 2015, include a wage cut for civil servants and members of the national parliament and a new wave of closures at state-owned companies. Spain will also speed up a gradual increase in the retirement age from 65 to 67.

The measures are in exchange for the bank bailout of up to 100 billion euro (£79bn) granted to Spain by the other 16 countries that use the euro. Finance ministers approved the bailout programme at meetings in Brussels this week and as much as 30 billion euro (£24bn) could flow to Spain’s banks by the end of the month.

The country’s banks are saddled with billions of euros in toxic loans and assets following the collapse of the property market. The goal is to strengthen the banks’ balance sheets against further economic shocks so they can start lending to businesses and families. Europe’s finance ministers also this week extended Spain’s deadline for achieving a budget deficit of less than three per cent of its annual economic output, until 2014.

Spain – the fourth-largest economy in the eurozone – has been struggling to keep a lid on its government deficit in the midst of a recession while trying to support its troubled banking industry. There are fears that should Spain need a bailout of its own, the eurozone would struggle to finance it. The jobless rate in Spain is nearly 25 per cent and the forecast is for the economy to shrink 1.7 per cent this year.

The country is mired in its second recession in three years. The concern among investors and Europe-watchers is that further austerity cuts will push Spain’s economy further into recession.

Blaming the previous Socialist government for the legacy of 8.9 per cent deficit in 2011, Mr Rajoy said, “The excesses of the past must be paid in the present.”

Highlighting the need to trim the civil service, Mr Rajoy said that while nearly three million private-sector jobs had been lost since 2007, public sector employment numbers had increased by 289,000. “I know the measures are not pleasant but they are imperative,” he said. “In the current situation in Spain, it’s not possible to create employment or grow economically. Never before have we had two recessions so deep and so close together – it’s something none of us here present have ever lived through – and the indicators suggest the recession will continue next year,” Mr Rajoy added.

The increases in sales tax announced yesterday include a three percentage point rise on products and services like clothing, cars, cigarettes and phone services to 21 per cent and a two percentage point increase on goods such as public transport fares, processed foods and bar and hotel services to 10 per cent. The sales tax on basic goods like bread, medicine and books stays at four per cent.